RAVI SHROFF,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX - 25(3), MUMBAI, BANDRA (EAST), MUMBAI

2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in treating Ground No.2 of the appeal before him as infructuous, and thus erred in not giving any finding in respect of the non-set off of long- term capital loss on sale of UTI Units against the long-term capital gains on sale of shares of Shroff Engg. Limited

3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in treating Ground No 3 of the appeal before him as infructuous, and thus erred in not giving any finding in respect of the non-granting of exemption under sections 54F and 54EC on the long-term capital gains on sale of shares of Shroff Engg Limited.

4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in treating Ground No.4 of the appeal before him as infructuous, and thus erred in not giving any finding in respect of the correct amount of short term capital loss to be carried forward.

Ravi shroff (AY 2015-16) 6. On the facts and in circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in levying interest under section 234C of the Act treating the same as compensatory, without appreciating the fact that interest under section 234C ought to be levied only on the basis of the income as per the return of income.

15.64 Crore on shares of HCL the assessee offered net capital gain at Rs. 2.74 crore and also claimed exemption under section 54F of Rs. 6.69 crore. was As per sale purchase agreement share price was fixed at Rs. 15401/- and sale receipt should be of Rs. 19.08 crore but as per bank statement the assessee has received only Rs. 18.45 crore. As per computation of capital gain the assessee officer Rs. 15.64 crore as full value of consideration. As per share purchase agreement remaining block amount and indemnity escrow account will be paid after completion of 100% share transfer. The AO asked the assessee has to why entire sale consideration accrued to assessee on transfer of sale of share be added to the income of assessee in view of section 28((ii) and CBDT Circular dated 02.05.2017.

In the return of income, the assessee has shown profit from transfer of said share and offered it as long-term capital gain. The assessee further stated that provisions of section 28(va) are applicable only to the person, who are engaged in the business and received any consideration towards non complete fees. The assessee was merely shareholder. He was not a director and nor involving in carrying of business. He has received consideration only for transfer of shares. No consideration towards not complete fees as per agreement is received. Thus, provision of section 28(va) cannot be made applicable. In alternative and without prejudice contention with was submitted that even if any consideration is allocated to a non-complete fee, then a same ought to be tax under the head ‘capital gain’. The assessee was merely shareholder and was not carrying out any business. Business was carried out by HCL, if the assessee has given his right by agreeing to non complete clauses contained in agreement, then the same ought to be computed as per the provision of section 55(2)(a) of the Act. The provision of section 28(va) is attracted only where a person was carried on business and not merely person only had right to carry in the business in the form of capital asset. The assessee also relied on CBDT Circular No 8 dated 27.08.20.22, wherein it was clarified that receipt for transfer of right in manufacture, produce or process any article or thing or right to carry on a business which is business. The assessee also relied on CBDT No. 225 of 2016 dated 02.05.2016.

per equity share. Unless all shareholder come together and agree to the term and condition, barring power with the purchaser party want to be there and they all decided to sale the share for better advantage to follow up them which look like advantage in the nature of trade and the business receipt professional fees for executing the deal. The AO held that the assessee has sold share of 12389 shares at the rate of 15401 of Rs. 19.180 crore. The assessing officer treating such receipt as business receipt under section 28(va). The AO in para 11 of assessment order noted that the assessee claimed exemption under section 54EC of Rs. 50.00 lakhs and 54F of Rs. 6.69 crore for investment in property. Since sale consideration was treated as business receipt, resultantly exemption under section 54EC and 54F was disallowed. Similarly, short term capital loss on share of Hyderabad Chemicals Limited and Tech Mahindra and shroff family trade amounting to Rs. 5.10 crore was also not allowed against business income of current assessment however; it was allowed to be carry forward for future years.

5. Aggrieved by addition in the assessment order and denial of exemption under section 54F and 54EC and denial of short-term capital loss. The assessee has filed the appeal before the Ld. CIT(A). Before Ld. CIT(A) the assessee filed his detailed written submission as recorded in para 5.4 of impugned order. The contents of such written submissions are not reproduced in the impugned order. The Ld. CIT(A) held that assessing officer has perused various clause of the agreement and transfer of business from assessee group to NNC group with a complete exclusion of assessee group and held that on identical facts Punjab and Haryana High Court in the case of Sumeet Taneja vs Commissioner of Income-tax, Chandigarh [2013] 38 taxmann.com 149 (P&H) examined the similar issue and treated the similar transaction as business receipt and upheld the action of assessing office. The other disallowances has filed present appeal before Tribunal.

Umashankar Prasad learned Commissioner of Income Tax-departmental representative hereinafter referred as (ld. CIT-DR) for the revenue. Ground No. 1 of the appeal relates to treating the sale price of shares as business income in place of capital gain. The ld.AR of the assessee submits that the assessee is son of Ashwin Shroff and Usha Shroff who were part of Shroff family and were promoters of Excel Industries Limited. The assessee originally acquired 3500 shares of Hyderabad Chemicals Limited (HCL) on 11.10.1980.

The assessee was born on 05/02/1978. These shares were purchased on behalf of assessee when assessee was minor. Subsequently, the assessee received 8889 as bonus and gift from his relatives. The average holding period of shares held by assessee as investment for more than twenty years. Further, the assessee was allotted equivalent no. of share in Vibrant Greentech Limited (VGT) the resulting company, whose name was subsequently change to HCL, pursuant to scheme of demerging. Thus, the assessee was holding 12,389 shares in HCL, being 3.78% of total share capital of HCL. HCL and its subsidiaries were promoted by late Dr Ramesh Gandhi and Dr Nandini Gandhi.

Dr Nandini Gandhi was sister of grandfather of assessee. HCL was in the business of manufacturing and sale of pesticide formulation. Dr Nandini Gandhi died in October 2003. Dr Nandini Gandhi has no children. The Gandhi’s along with Sukumar Nellore (MD) were directors and were in control of share held by Gandhi family bequeath to Shroff family and thereafter Dipesh Shroff acted as chairman and non executive director and Shruti Shroff was another non executive director. The ld. AR of the assessee also submitted tree of Shroff family. Dipesh Shroff is grandson of brother of assesses grandfather.

Fact remains the same that business of HCL and its subsidiaries continue to be managed by Sukumar being Managing Director, the assessee was never a part of HCL Company. At the time of sale of sale of share he was the executive director of Excel Industries Ltd, which is in the business of industrial chemical and not connected with the business of HCL. The assessee joined Excel Industries Ltd on 26th March 2010 as Senior Vice President (Business Development), later on appointed as Executive Director. The ld AR for assessee while explaining the facts submits that during the year under consideration NNCL entered into agreement for purchase of 74% shares of HCL on 27th November 2014 at share price of Rs. 15,401/- per share. The said price was subject to Pre and Post Closing Net Working Capital and Net Debt Adjustment as per clause 3.1, 3.3 & 3.6 of agreement. Finally, price of shares of HCL was agreed at Rs. 14,869/- per share. The assessee received total consideration of Rs. 18.45 Crore, details of which are available at page No. 119 & 120 of PB.

7. The ld AR of the assessee further submits that similar capital gain has been accepted by department in case of Ashwin C Shroff (PAN: ALPS 6493H), Usha Ashwin Shroff (PAN: AAFPS 5029J), Vishwa Nellore (PAN: AKYPN 6486 H) and S. Kumar Nellore (PAN: AAHPR 8333 C). However, in case of Shruti Atul Shroff on sale of similar share. Though, capital gain was accepted but deduction under section 54F was disallowed by AO, on the ground that she owned more than one residential house, but of appeal before CIT(A) she was allowed relief of deduction under section 54F and further appeal by revenue before Tribunal facts remained the same that she was allowed capital gain. Thus, the assessee cannot be treated indifferently. The ratio of decision relied by the ld CIT(A) in his finding in case of Sumeet Taneja Vs CIT (supra) is not applicable on the facts of his case, as the facts of this case is at variance, the assessee in that case was major shareholder, promoter and managing director of the company, however, the assessee was admittedly having share holding of less than 4% and was not involved in the business of the company whose shares were sold in joint agreement. The ld AR of the assessee fairly submits that in cases of certain other family members, similar transaction was treated as business income, and their appeals are pending before CIT(A) level. To support his various contentions the ld AR of the assessee relied on the following case laws;  Venkatesh Vs CIT (2000) 109 Taxman 78 (Madras),  Smt. Maharani Usha Devi Vs CIT (1892) 8 Taxman 91 (MP),  CIT Vs S. Chenniappa Mudaliar (1967 64 ITR 213 (Mad),  Gillanders Arbuthnot & Co Vs CIT (1964) 53 ITR 283 (SC),  CIT Vs Best and Co. (1966) 60 ITR 11(SC),  DCIT Vs Sandeep Dave (2019 109 taxmann.com 138 (Raipur-Trb),  Vodafone International Holding Limited Vs Union of India (341 ITR 1 SC),  Govindlal Mandhana Vs Add CIT in ITA No(s)3881, 3877, 3095, 3906/ Mum/2010 dated 15.02.2012,  Mrs. Hami Aspi Balsara Vs ACIT (2010) 126 ITD 100 (Mum) 11 lower authorities. The ld CIT-DR for the revenue submits that the stand of the assessee that he was not associated with the business of HCL, are new facts, such facts were not brought to the notice of AO or ld. CIT(A). If it was share transfer or business transfer by way d sale of 74% holding in HCL can be interpreted in either of the way. Majority of shares were acquired by the Japans Company. Share transfer agreement is in fact business transfer agreement. The intention in the share purchase agreement was in fact to acquire entire business of HCL. The ld CIT-DR for the revenue read over various clauses of the share purchase agreement including the clause of non- compete fee and argued that the ratio of decision of Punjab & Haryana High Court in case Sumeet Taneja (supra) is clearly applicable on the facts of present case. The ratio of other decisions as relied by ld AR of the assessee is not squarely applicable on the facts of the present case as the facts of all such cases are at variance.

11. We find that the AO treated the gain on transfer of shares as business income by taking view that share purchase agreement shows that all shareholder have come together at one single go to perform sale of their share and agreed to all the clause referred in such agreement and transferred the control and management of the company. The act of such share transfer is adventure in nature of trade as all shareholder come together and on agreeing the term and condition all decided to sale the share for better advantage and is taxable as business income under section 28(va). The action of AO was upheld by ld CIT(A) by refereeing the decision of Punjab & Haryana High Court in Sumeet Taneja (supra). as the assessee in that case was major shareholder, promoter and Managing Director of the company, however, the assessee in the case in hand was admittedly having share holding of less than 4.00% and was not involved in the business of the company whose shares were sold in joint agreement. The assessee was merely a share holder of less than 4.00% of shares. No evidence was brought on record that the assessee was involved in the day-to- day activities of HCL or was managing the affairs of the company. Initially the shares were purchased on behalf of assessee, when he was minor and thereafter received certain shares on gift and on account of bonus shares and finally on the death of Mrs Nandni Ghandhi, under will. Before us, the ld AR of the assessee furnished the family tree of Shroff family, for appreciation of facts such pedigree is reproduced below;

Considering the aforesaid factual and legal discussions, the consideration received by assessee on sale of shares of HCL is not business receipt and to be taxed as capital gain. shares at Rs. 19.08 Crore (12389 x 15401), however, final sold price of shares of HCL was agreed at Rs. 14,869/- per share. The assessee received total consideration of Rs. 18.42 Crore (12389 x 14869), details of which are available at page No. 119 & 120 of PB. Thus, the AO is directed to consider the sale consideration of shares at Rs. 18.42 Crore for the purpose of computing long term capital gain. Thus, various sub-grounds of ground No. 1 of the appeal is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced on 07/11/2025 in open court.